Shareholders of ChannelAdvisor Corporation (NYSE:ECOM) will be pleased this week, given that the stock price is up 14% to US$10.82 following its latest annual results. It looks like a credible result overall – although revenues of US$130m were what analysts expected, ChannelAdvisor surprised by delivering a (statutory) profit of US$0.12 per share, an impressive 80% above what analysts had forecast. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, ChannelAdvisor’s six analysts currently expect revenues in 2020 to be US$131.3m, approximately in line with the last 12 months. Statutory earnings per share are forecast to reduce 3.9% to US$0.12 in the same period. Before this earnings report, analysts had been forecasting revenues of US$136.0m and earnings per share (EPS) of US$0.23 in 2020. Analysts seem less optimistic after the recent results, reducing their sales forecasts and making a large cut to earnings per share forecasts.
What’s most unexpected is that the consensus price target rose 7.8% to US$13.80, strongly implying the downgrade to forecasts is not expected to be more than a temporary blip. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values ChannelAdvisor at US$17.00 per share, while the most bearish prices it at US$12.00. This shows there is still quite a bit of diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. It’s pretty clear that analysts expect ChannelAdvisor’s revenue growth will slow down substantially, with revenues next year expected to grow 1.0%, compared to a historical growth rate of 8.4% over the past five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 12% per year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect ChannelAdvisor to grow slower than the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
With that in mind, we wouldn’t be too quick to come to a conclusion on ChannelAdvisor. Long-term earnings power is much more important than next year’s profits. At Simply Wall St, we have a full range of analyst estimates for ChannelAdvisor going out to 2024, and you can see them free on our platform here..
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